Method for listing and trading a futures contract that has a daily mark to market against an index therefore allowing interest rate swaps to be substituted by constant maturity futures contracts.

Abstract

A method for trading an index based on a notional contract using a futures contract where the futures contract is marked to the value of the index on a daily basis rather than only on expiry of the future. In one aspect of the invention the futures contract can be further adapted to have no expiry date, and the mark-to-market used to tie the contract to the underlying market. This construction is particularly useful when trading interest rate products, where the interest rate sensitivity of the International Money Market Dates for expiry changes the nature of the hedge.

What is claimed is: 
     
         1 . A processor implemented method of operating an exchange, the method comprising: listing via a processor a futures contract, said futures contract including terms that mark the value of the position against an index at the end of day each trading day in the contract on a daily basis, wherein: (a) said futures contract provides that (i) a long position holder in said futures contract entitles the holder to receive profit or pay loss versus the mark-to-market value versus an underlying index on the daily basis where such profit or loss is the difference between the holders entry price, or most recent mark-to-market price and the next mark-to-market price from the underlying index. An increase in the value of the index corresponds to a profit to the holder. (ii) a short position holder in said futures contract entitles the holder to receive profit or pay loss versus the mark-to-market value versus an underlying index on a daily basis where such profit or loss is the difference between the holders entry price, or most recent mark-to-market price and this mark-to-market price from the underlying index. A decrease in the value of the index corresponds to a profit to the holder; and transmitting said data from the computer system. 
     
     
         2 . The method of  claim 1 , wherein the relative profit and loss between the holders of the long and short position relative to the underlying index is reversed. 
     
     
         3 . The method of  claim 1 , wherein the underlying index is a proxy for a more complex calculation, such as a traded rate which represents the present value of a leg of a swap. 
     
     
         4 . The method of  claim 1 , wherein the underlying index is a proxy for a more complex calculation, such as a strip of forward rate agreement contracts. 
     
     
         5 . The method of  claim 1 , wherein the futures contract has no expiry date, a Constant Maturity Future, and is open to trade in perpetuity having no expiry date, but being marked-to-market against an index on a daily basis. 
     
     
         6 . The method of  claim 1 , wherein the index that the futures contract is marked against is a Constant Maturity Index, where the index is constructed from traded prices, bid/offer prices or mid-price sentiment derived prices of a specific maturity of an interest rate swap. 
     
     
         7 . The method of  claim 6 , wherein the index that the constant maturity index that the contract is marked to is based solely on instruments that have the maturity specified in that index. Each day the maturity is kept constant and the uses the reference market rather than fixing to specific instruments. 
     
     
         8 . The method of  claim 6 , wherein the index that the constant maturity index that the contract is marked to is based on instruments where an adjustment is applied to their price to give them effectively the same maturity as the index requires. 
     
     
         9 . The method of  claim 1 , wherein the futures contract has a specific mechanism that is applied to the overnight process that applies at the close and the open of the contract to reflect the value of keeping the contract constant in maturity. 
     
     
         10 . The method of  claim 9 , wherein the futures contract overnight mechanism includes an accrual payment between the holder of the long position and the holder of the short position that is represented by the equivalent of a single days accrual of an equivalent swap at the same rate and maturity of the swap price at the point of the mark-to-market. 
     
     
         11 . The method of  claim 9 , wherein the futures contract is marked-to-market at the open against a point on an exponential curve of swap rates derived from a constant maturity index which represents the maturity minus difference in the day count from the previous trading day to the trading day on the open of the new day's trading. 
     
     
         12 . The method of  claim 9 , wherein on the open of a trading day, there is an exchange in the net present value of the equivalent swap between the holders of the long position in the futures contract and the holders of the short positions in the futures contract using the both the current day open price, and an exchange in the net present value of the equivalent swap between the holders of the long position in the futures contract and the holders of the short positions in the futures contract using the mark-to-market price using a point on an Exponential Interpolation to build a curve of swap rates derived from a series of constant maturity indices where the point represents the maturity minus difference in the day count from the previous trading day to the trading day on the open of the new day's trading. 
     
     
         13 . The method of  claim 6  wherein the market that the prices for instruments are taken from and used to construct the constant maturity index are Interest Rate Swaps. 
     
     
         14 . The method of  claim 8  wherein the underlying market for the construction of the Constant Maturity Index is the Non-Delivered Forward FX market. 
     
     
         15 . The method of  claim 6  wherein the market that the prices for instruments are taken from and used to construct the constant maturity index are Cross-Currency Swaps. 
     
     
         16 . The method of  claim 8  wherein the underlying market for the construction of the Constant Maturity Index is the Overnight Index Swaps. 
     
     
         17 . The method of  claim 6  wherein the market that the prices for instruments are taken from and used to construct the constant maturity index are Inflation Swaps. 
     
     
         18 . The method of  claim 6  wherein the market that the prices for instruments are taken from and used to construct the constant maturity index are Asset Swap Spread. 
     
     
         19 . The method of  claim 6  wherein the market that the prices for instruments are taken from and used to construct the constant maturity index are Matched Maturity Asset Swap Spread. 
     
     
         20 . The method of  claim 6  wherein the market that the prices for instruments are taken from and used to construct the constant maturity index are Credit Default Swaps. 
     
     
         21 . The method of  claim 8  wherein the market that the prices for instruments are taken from and used to construct the constant maturity index are Sovereign Debt Instruments. 
     
     
         22 . The method of  claim 6  wherein the market that the prices for instruments are taken from and used to construct the constant maturity index are Total Return Swaps. 
     
     
         23 . The method of  claim 6  wherein the market that the prices for instruments are taken from and used to construct the constant maturity index are Mortality Swaps. 
     
     
         24 . The method of  claim 8  wherein the market that the prices for instruments are taken from and used to construct the constant maturity index are baskets of Repo Instruments. 
     
     
         25 . The method of  claim 12  wherein the exponential interpolation is replaced with a Cubic Spline Interpolation. 
     
     
         26 . The method of  claim 12  wherein the exponential interpolation is replaced with a Linear Interpolation. 
     
     
         27 . The method of  claim 1  wherein the tick value of the futures contract is a fixed value based on a subdivision of the notional size of the contract. 
     
     
         28 . The method of  claim 1  wherein the tick value of the futures contract is a dynamic value based on a the present value of a leg of a notional swap discounted to current present value by a series of constant maturity swap indices and where appropriate the Overnight Interbank Swap Rate, or equivalent replacement short term lending rate. 
     
     
         29 . The method of  claim 1  wherein the tick value of the futures contract is a dynamic value based on a the net present value of a notional swap discounted to current present value by a series of constant maturity swap indices and where appropriate the Overnight Interbank Swap Rate, or equivalent replacement short term lending rate. 
     
     
         30 . The method of  claim 1  wherein the tick value of the futures contract is a dynamic value based on a the present value of a an underlying debt instrument discounted to current present value by a series of constant maturity swap indices and where appropriate the Overnight Interbank Swap Rate, or equivalent replacement short term lending rate. 
     
     
         31 . The method of  claim 28  wherein the traded quantity is the notional rate of the equivalent swap and the executed trade confirmation is for the present value of one leg of the equivalent swap. 
     
     
         32 . The method of  claim 29  wherein the relative profit and loss between the holders of the long futures position and the short futures position is the difference between the present value of the trades at point of execution, multiplied by the number of contracts traded and the notional contract size. 
     
     
         33 . A processor implemented method comprising: holding via a processor a position in a Constant Maturity Futures contract, said Constant Maturity Futures contract including . terms that represent the underlying notional instrument, and require the end of day mar-to-market of the Constant Maturity Index against a specified constant maturity index. 
     
     
         34 . The method of  claim 33 , further comprising: storing a record of the position in a computer. 
     
     
         35 . The method of  claim 33 , further comprising: storing, in the computer, a record of a position in the equivalent underlying contract. 
     
     
         36 . The method of  claim 5 , further comprising: a market rule existing allowing the temporary addition of an expiry date based on exceptional market circumstances such as illiquidity. 
     
     
         37 . The method of claim  44 , further comprising storing a present value of a transaction entered into based on the discount factors of a constant maturity index.